The World of Investing Is About To Change!
Fundamental change is coming to the world of investing and it is coming fast. It is arriving in the form of Dynamic Investment Theory and the next-generation investment type that it creates called NAOI Dynamic Investments. Developed by the NAOI based on 5+ years of research and testing, this new investment type will change the world of investing at a fundamental level and virtually every area of the financial world will change - for the better!
The purpose of this Web page is to provide to the media a quick overview of what Dynamic Investments are and the impact they will have on the investing world.
What you will read on this page, and on the rest of this site, represents a glimpse into the future of investing. It is a story that will be of intense interest to your audience - whether they are individual investors or financial professionals.
Allow me to introduce myself as Leland Hevner, President of the National Association of Online Investors (NAOI). Formed in 1997 the NAOI is the nation's leading supplier of college-level, objective investor education. We have taught thousands of individuals how to invest with confidence.
Yet, in 2008 I temporarily shut down our teaching activities. Why? Because as the stock market crashed the portfolios I was showing my students how to create were crashing along with it. I had to face the fact that the portfolio design methods I was teaching, as set forth by Modern Portfolio Theory (MPT), were severely outdated and simply didn't work in modern markets. Yet they are still used almost universally today.
I saw that more than education was needed to empower individuals to become successful investors. Also needed was innovation. And with this realization, the seeds of a significant evolution in the world of investing were planted.
Kick Starting the Evolution of Investing
In 2008 I redirected the focus of the NAOI to finding a better approach to investing, one that worked in modern markets. People were losing a lot of money while doing everything that their financial advisors had recommended. I needed to find out why. It didn't take long. The chart at right shows the reason.
Today the financial services industry, almost without exception, uses a portfolio design methodology called Modern Portfolio Theory (MPT). This theory defines the rules for creating portfolios that match an investor's risk tolerance level through the use of asset allocation. MPT portfolios are then meant to be bought and held for the long term without regard for market movements.
The problem is that MPT was introduced in 1952 when markets were a different and far "quieter" place. While markets have evolved significantly since then, the portfolio design methods we use to cope with them have barely changed at all. My goal became to get the evolution of investing started again by developing a new approach to investing that could cope with modern market dynamics. I had no misconception that doing so would be easy, quick or inexpensive. But I had no option. I simply could no longer teach investing methods that didn't work.
Following 5+ years of research and 3 more years of field-testing, we found the approach that I was seeking in the form of Dynamic Investment Theory and the use of the Dynamic Investments that the theory creates. This entire Web site is devoted to describing this revolutionary approach to investing. Below is a summary of the new approach written as a cheat sheet for members of the financial media.
Dynamic Investments "Cheat Sheet"
Dynamic Investments (DIs) are the market's first investment type that is "sensitive" to market movements and has the internal intelligence to take advantage of them. Each DI has the following components as illustrated in the diagram at right.
- Dynamic ETF Pool (DEP) - Defined by a DI designer, this is a group of ETF candidates that are available for purchase by the DI. They define the areas of the market where the DI will search for positive returns. The DEP is periodically ranked to identify the one ETF that is trending up most strongly at time of review. That is the one ETF that is owned by the DI until the next Review Period.
- Review Period - The designer specifies how often the DI will rank its DEP to find the ETF trending up in price most strongly. If the winner is the ETF already held then no trade is needed. If the top ETF is different, then a trade is signaled. Typically the review period is Quarterly but monthly and semi-annually are also viable options.
- Trend Indicator - This is the price chart indicator that the DI uses to rank the DEP at time of review. It is revealed in the Dynamic Investment Bible and to organizations with whom the NAOI consults.
- A Fourth Component: This is proprietary NAOI component that substantially lowers the risk of all DIs while enhancing their ability to capture positive returns. This component is discussed in The Dynamic Investment Bible and will be revealed to any organization that works with the NAOI via a consulting contract.
Once created by an NAOI-trained designer, a DI's components do not change. Thus, an investor can simply buy and hold it for the long-term while it periodically and automatically signals trades based on objective measurements of market trends.
A DI can be accurately described as a passively managed, active investment, providing its holder with the best features of both styles. And since DIs have the universal goal of capturing the positive returns that the market offers at all times and in multiple areas, DIs do NOT need to be customized for each individual investor. As a result, DIs "productize" the world of investing - and this is huge! Chapter 10 of The Dynamic Investment Bible is devoted to the implications of the NAOI finding the "Holy Grail" of the investing world.
A more detailed Dynamic Investment description of Dynamic Investment Theory and Dynamic Investments is found by clicking here.
Dynamic Investment Performance
Of course all of this would be moot if Dynamic Investments provided the same or only slightly better performance than a carefully designed MPT, asset-allocation portfolio. The fact is that during our testing of Dynamic Investment Theory we found ourselves creating investments that produced returns that had us shaking our heads in amazement. DIs didn't just outperform MPT portfolios using the same ETFs, they blew them out of the water. It wasn't even close. Here's an example:
Let's take two ETFs, one for stocks and one for bonds and place them into both an MPT and a DI structure - then look at the backtested performance for each during the past decade (2007-2016). Here are the test parameters:
- Stock ETF: SPY - Tracks the S&P 500 Stock Index. These are Large-Cap, Value Stocks
- Bond ETF: TLT - Tracks the price of Long-Term Government Bonds
- MPT Portfolio Variables: Allocation - 60% SPY, 40% TLT
- DI Variables: DEP Contents - SPY, TLT, Review Period - Quarterly, Trend Indicator - NAOI Specified
Performance Comparison for 10 years from the start of 2007 to the end of 2016:
A +16% return average annual return during a period that included a major stock market crash is simply amazing. This 2-ETF Dynamic Investment produced returns that are double those of the MPT portfolio with approximately half the risk! (Note that the Sharpe Ratio is a measure of how much return is achieved for each unit of risk taken - the higher the better.)
But an NAOI-trained DI Designer would not use SPY as the stock ETF. DI's thrive on volatility and in place of SPY, a DI designer might use a more volatile stock ETF such as RZG - a Small-Cap, Growth Stock ETF. Designer training and testing would also tell them to include another Stock ETF in the DEP, one that tracked Large-Cap, Value Stocks along with the Bond ETF used above. Here is the average annual performance from 2007-2016 of this 3-ETF DEP that we call the NAOI "Basic" DI:
That is not a misprint. This simple 3-ETF Dynamic Investment earned an average of +30.6% per year for the time period from the start of 2007 to the end of 2016.
These results not only show the amazing performance of this DI but also another incredible fact as well. In the DI world of investing, higher returns are not achieved by taking on higher risk. They are achieved by placing different and more ETFs in the DI's DEP allowing it to search in more areas of the market for positive returns. Breaking the risk-reward link is a huge development in the field of investing and it completely invalidates the core concepts of Modern Portfolio Theory. This is a major story!
The "Productization" of Investing
But it just keeps getting better. Dynamic Investments "productize" the world of investing. This is the Holy Grail of the financial world. Each DI has the universal goal of high returns and low risk so there is no need to customize them to match a person's risk tolerance. And, DIs are comprehensive investments - specifying both the ETFs to work with and when trades need to be made on an ongoing basis. Thus, DIs can be bought "off-the-shelf" from multiple vendors and simply held by the investor for the long term. But, unlike MPT portfolios, investors can sit back and relax in the knowledge that their DI(s) are automatically adjusting their holding(s) to take advantage of any market changes. DIs are the market's first and only active investment with passive management. This is investing evolution at its finest and another major story!
Change Is Not Optional
Despite the advantages of using Dynamic Investments, some in the financial services industry will see them as a threat. Even the simplest Dynamic Investment outperforms the most sophisticated MPT portfolio that the industry is currently selling - and this will be disruptive to current revenue streams. Thus, there will be many who question the claims presented on this site. Members of the media can rest assured that I have the hard data to backup every assertion that I have made here.
As much as change of this nature may be resisted, change will not be optional for the financial services industry. The NAOI is deploying its education and marketing divisions to inform the public about the benefits of Dynamic Investments. Many of our students are using, and benefiting, from them today. And feedback from these field-testers has shown that when people learn about DIs, they will demand them.
Organizations that meet this demand will thrive; those that don't will fade away. That's the power and effect of investing evolution. And the sooner that the financial services industry sees what is coming the sooner they can prepare for it in their strategic planning.
So, Who Am I?
Of course to consider writing an article or conducting an interview about a topic with the far reaching significance of Dynamic Investments, any reporter must ensure that the source has credibility and that the facts provided are solid. To calm any fears in that regards, my background and credentials are found by clicking here. I summarize this information briefly below.
I am the President of the National Association of Online Investors (NAOI), an organization that I founded in 1997. It has grown to become the nation's leading provider of objective, college-level investor education, having taught thousands of individuals the art and science of investing.
I am a self-directed investor, a certified Financial Advisor, a teacher of personal investing at the college level, a consultant to financial organizations and governments, an author of multiple best-selling personal investing books, an investment researcher/innovator and have been a frequent commentator on major TV and Radio networks.
I have also been quoted extensively in the print media including the Wall Street Journal, Barons and US News and World Report among others. My niche area of expertise is my unwavering advocacy for the fair treatment of the average individual with money to invest. It is a viewpoint rarely heard, and a "side" rarely taken, in the financial media today. You can review my media exposure by scanning the NAOI Pressroom.
The Dynamic Investment Bible
Of course the whole intriguing story of why and how Dynamic Investments were developed cannot be told on this Web page or this Web site. It is told in the recently released book entitled The Dynamic Investment Bible. You can read about it by clicking here. And it can be purchased by clicking here.
Virtually all financial organizations will benefit and gain a massive competitive advantage by integrating Dynamic Investments into their strategic plans. Different companies will utilize them in different ways. To fully exploit the value of this new approach to investing in an optimal manner, the NAOI offers customized consulting services that can be reviewed by clicking here.
I can be contacted at LHevner@naoi.org or called at 813-949-3817 in Tampa, Florida. Also feel free to connect with me at linkedin.com/in/lelandhevner
To stay current on breaking news related to Dynamic Investments be sure to signup for Updates Emails at the bottom of the page and follow me on Twitter at https://twitter.com/LelandHevner
Full contact information is found by clicking here.